Author: AT

While flipping through the morning newspapers, I came across the headline in The Mint

https://www.livemint.com/auto-news/car-sales-in-2018-19-sputter-in-signs-of-worry-for-the-indian-economy-1554745268049.html

The article talks about how the likes of Maruti Suzuki, Tata Motors, Hyundai etc have had a poor run in the last quarter and so the numbers reported are below the general expectation.

Here goes the argument of the author – low car sales numbers indicate that the consumption story in India is hitting a road bump. This to the author is an indication that all is not well with the Indian economy and we should brace ourselves with more bad news in days to come – at least in the automobile and car manufacturing space.

Arguments in favour of this line of thought shared in the article are as below –

1. Higher fuel prices adversely affected sales for the whole year
2. Insurance cost is escalating, leading to more discouragement in buying the automobile
3. Higher GST on the high-end premium segment vehicles
4. Higher interest rates of lending with typical borrowing cycle for a new vehicle lasting for 10 days when compared to 2 days in the past. This is more in the context of commercial vehicles though.

While the arguments above are strong enough for one to believe that auto manufacturers are actually going through a rough patch but here are few more factors that need consideration before any conclusion can be made.

1. For reasons best known to the authors, they have simply ignored the growing population and now saturation of shared cab driving options available in almost all Tier I to Tier IV cities. In Delhi NCR, one can see that the roads are completely saturated with a high density of Ubers and Olas plying. One estimate is that there are more than 3 Lakhs Ubers and Olas plying in Delhi alone. With such a high incidence of vehicles in the last 3 to 4 years, a change in the buying habits of the consumers is quite natural.
   • Consequently, if there was a need to buy 2 cars, families now are ready to stick with one.
   • Also, the fast growth rate that these ride-sharing apps saw in the last few years is difficult to replicate so the growth triggered by them is bound to flatten or dip now onwards.
2. Growing awareness of environmental hazards from the vehicular emissions is nudging people to take public transport more often now. In cities like Delhi NCR, metro trains snake through most of the heavy traffic corridors of the city now. This has again led to a reduction in reliance, and so the need, of a private vehicle.
3. Wait for the electric vehicles or similar options have also left the window open for people to consider cleaner fuel options, as they become available. I have people in my circle who are deferring purchase of their private cars in anticipation of the arrival of electric vehicles in the next few years.

A combination of these additional factors above indicates that the markets are not going to witness any significant uptick in sales numbers. Political factors like Brexit are adversely affecting certain counters as well.

It is therefore advisable to off-load your holdings in the auto sector till a mega announcement like the advent of electric vehicles is not announced. That would be the right opportunity to enter the sector again.

Perhaps the author of this LiveMint article should also look around himself/herself and make a better analysis of the changes that are happening in a sector.